Syria’s million-ton Russian wheat deal in jeopardy

A deal struck in October for Syria to buy 1 million tons of wheat from its ally Russia to prevent bread shortages in government-held areas has not been fulfilled – and may never be – Syrian and Russian government sources have said. A Syrian government official with knowledge of the deal said a final contract had still not been agreed, blaming bureaucratic delays, but added that there were no shortages.

An official at Russia’s Agriculture Ministry said the core problem was that the little-known firm that won the tender lacked experience and set the price too low.

Syrian state buyer Hoboob set three separate tenders to buy an unprecedented 1.35 million tons of wheat last year, after continued fighting from the country’s nearly 6-year-old war and poor rainfall halved the nation’s harvest to 1.3 million tons, the lowest in 27 years.

The last of the three tenders was specifically for wheat from Russia, which supports President Bashar Assad in the war and from whom Syria often buys its wheat.

Although foodstuffs are not restricted, banking sanctions and asset freezes imposed by Washington and Brussels have made it difficult for some trading houses to do business with Assad’s government.

But trade with Russia poses fewer problems.

The biggest tender of the three, for 1 million tons, was supposed to arrive in batches of 75,000 tons every month starting 60 days after the letters of credit were opened, the Syrian government source said.

But “the letters of credit haven’t been opened yet,” he said. “There is a certain system, routine and approvals that are needed, [so] the contracts have not been finalized.”

“We have received nothing from the Russian company,” he said.

A source at Russia’s Agriculture Ministry told Reuters Tuesday he did not think the contract would ever be fulfilled because the company that won it, Zernomir, could not source the wheat at the agreed price, which was too low.

The contract was awarded at 150 euros ($161.37) a ton, on a cost and freight basis.

That compares with the Black Sea price of $185 per ton on a free-on-board basis (before adding the cost of freight) for Russian wheat with 12.5 percent protein for February supply quoted at the end of last week, according to Russian agricultural consultancy IKAR.

Both government sources asked not to be named because they were not authorized to speak to the media.

Attempts by Reuters to reach a Russia-registered firm called Zernomir were not successful.

The Syrian source said there would be other ways to source the wheat if the deal ultimately fell through, and that there was no shortage of bread thanks to Syria’s “strategic stock.”

“We realize the price is very low, and I’m skeptical too about the deal, but it doesn’t matter,” he said.

“Even if that wheat doesn’t come, we have more than one way of fulfilling our needs and there is no shortage,” he added.

Flat bread is a subsidized staple for Syrians, who have suffered under a conflict that is estimated to have killed several hundred thousand people and forced millions to flee their homes.

The Russian ministry source said he hoped another Syrian tender could be arranged in the future.

Andrey Sizov, the head of SovEcon agriculture consultancy, said the problems with the deal were unlikely to have long-lasting implications for Russia’s relationship with Syria.

“The military and political cooperation is far more important than wheat supplies. Plus, Russia does not say that it would not supply anything, it is just the matter of difficult logistics,” Sizov said.

From the first two tenders, 350,000 tons have arrived and an additional 50,000 tons has been shipped, the Syrian government official told Reuters.

However, those numbers could not be corroborated by Russian customs data.

Russia supplied a total of 48,300 tons of wheat to Syria in calendar 2016, a source familiar with Russian export data told Reuters.

Russia also plans to give Syria 100,000 tons of wheat in humanitarian aid in four cargoes, the Russian Agriculture Ministry source said.

The first cargo is expected to be loaded in the first half of February.

It is unclear why the Syrian government chose to award the contract to Zernomir.

Russian government and industry officials had expressed doubt about the deal from the beginning.

The head of a non-state Russian farmers lobby group, when asked in October to comment on whether a deal had been agreed, had said it was unclear whether the company was capable of fulfilling the contract.

Grain Union chairman Arkady Zlochevsky told Reuters Thursday: “The contract is not being executed. It confirms my point of view on it.”

Syria was a wheat exporter before the war, producing 4 million tons in a good year and able to export 1.5 million tons.

But farms, seed distribution, milling and bakeries have all been damaged and disrupted by the ongoing conflict.

Assad’s government managed to collect only around 400,000 tons of the 1.3 million tons that the U.N. Food and Agriculture Organization estimated Syria produced last year.

The bread-basket provinces of Hassakeh, Raqqa and Deir al-Zor, which are largely outside government control, account for nearly 70 percent of total wheat production.

While the government ensures cheap prices for bread in the areas under its control and aid agencies offer supported prices in some areas, Syrians elsewhere complain of shortages and high prices.

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